Chevron's Investments Fuel Future Growth
Jacob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Chevron (NYSE: CVX) is the fourth largest of the six super major oil companies, trailing ExxonMobil (NYSE: XOM), Shell and BP. It is headquartered in San Ramon, California. Chevron's main business lines are fuels, natural gas, chemicals, lubricants, refining, supply & trading, shipping, pipelines, and exploration and production.
The oil major has decided to spend almost $37 billion in 2013 across the world, to be utilized for oil exploration and building huge capital projects.
Financials (Company Not To Blame)
Chevron reported third quarter earnings that reflected the effects of lower oil and natural gas prices. Chevron's Q3 revenue was recorded at $56 billion, compared to $61 billion in the third quarter of 2011. Downstream operations were affected by lower volume due, in part, to a fire at Chevron's San Francisco area refinery, and lower marketing margins on refined products.
Strong dividend history
Chevron is known to be a dividend champion stock, with a track record of 25 straight years of dividend increases. The company has an impressive track record of capital growth in share price, a past record of distributing continued increases over 25 years on dividends paid, delivering additional returns for investors via dividend income.
Chevron announced that it will have a $36.7 billion capital and exploratory investment program for 2013. There is also $3.3 billion of planned expenditure by affiliates in 2013, which does not need cash outlay by Chevron.
Around 90% of the planned spending is budgeted for upstream crude oil and natural gas exploration, and production projects. Another 7% is reserved for the company’s downstream businesses that manufacture, transport, and sell gasoline, diesel fuel, and other refined products, fuel, lubricant additives, and petrochemicals.
A major portion of the 2013 spending has been allocated for large, multi-year developments. Chevron is setting up to spend $33 billion for the exploration, production and natural gas-related projects, focusing on the company’s successful and focused drilling results in recent years, as well as for further assessment and evaluation of other potential areas in the world’s major hydrocarbon basins.
Competition’s Matching Capex
Chevron's competitors like Anadarko Petroleum (NYSE: APC), Exxon and Marathon Oil (NYSE: MRO) have all enhanced their capital budgets in order to meet the rising demands. ExxonMobil plans to spend almost $185 billion in capital over the next five years. On average, Exxon spends $37 billion a year, which goes along with Chevron's projected spending for 2013.
Anadarko Petroleum (NYSE: APC), whose flourishing business in Mozambique has now inclined spotlight to Kenya, is doing tremendously well in Eastern Africa. The American oil and gas company has taken an upbeat step towards building infrastructure in those countries, often spending from its own pockets.
Marathon has been very vigorous in Angola, Canadian oil sands and Kurdistan. The company declared a capital budget of $5.2 billion in 2013.
Projects Lined up
Looking forward, Chevron has a number of projects in the pipeline which could boost its revenues. One of the most interesting projects is the supply of natural gas to eastern European countries. Recently Chevron bought a 50% stake in LL Investicijos, which is a privately held Lithuanian oil and gas exploration concern.
Chevron had already acquired 4 million acres of land in Poland and Romania, and had been approaching Bulgaria to lift its freeze on shale gas exploration.
Chevron has also started potentially rewarding drilling projects in Indonesia and in Australia. In Indonesia, Chevron started a $500 million development of its Duri field project in Sumatra. At peak production, the site is expected to add 17 thousand barrels of oil per day to production.
Chevron has big plans for several natural gas projects and is spending a massive amount in developing infrastructure and lining up future customers for natural gas in Asia. This will be a great boost for the company’s growth, because in Asia, natural gas prices five times higher than in North America.
Recent developments (All Good For Chevron)
Recently the oil and gas giant reported two new gas discoveries in Australia. This expands the gas portfolio of the company to 19 in the country.
The Canada unit of the Chevron Corp will buy a 50% stake in the Kitimat liquefied natural gas project and proposed Pacific Trail Pipeline from EOG Resources and EnCana.
Chevron is keen to pay about 300 million reais ($144 million) to settle lawsuits in Brazil over an oil spill last year, a senior executive and a federal prosecutor said on Friday.
There are macro-economic and political headwinds that have put pressure on stock prices and the price of oil. But with the global economy trending towards stronger growth, there could be an increment in the use of energy resources. The planned capital expenditure of Chevron, which will pay off by 2017, and other projects undertaken by the company puts it in a good position to see an increase in its profits in the future.
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